A new normal and New York Magazine on financial reform

I remember when everything was back to "normal." It was when John
Cassidy flagged, on his blog, Ken Chenault, the longtime CEO of American Express, getting paid $80 million dollars. How has American Express been doing the past few years? Here’s Cassidy:

How has Amex done during recent times? From a
stockholder’s perspective, not very well at all. In January 2001,
when Chenault took over as CEO, the stock was trading at about
$55. Today it is trading around $40. In the interim, it has had its ups and downs, but the overall trend has been negative. During the past three years, a tough time for the entire financial industry, the stock price has fallen by about a third. And this decline would surely have been a lot bigger if, during the depths of the financial crisis, the federal government hadn’t agreed to guarantee as much as $14 billion of Amex’s debt and inject $3.4 billion of taxpayers’ money into the company. As a result of the government’s actions, Amex’s stock rebounded sharply from a low of $10 last January.

You might think that Chenault would have suffered along with other Amex stockholders, and, to some extent, he did. According to a recent SEC filing, he was paid $33.9 million in 2007, $28.8 million in 2008, and a measly $17.4 million in 2009. Poor guy …

Back to normal. A new normal, of record financial profits, bonuses and CEO salaries. Wait, that was the old normal of the 2000s.
What's changing?

John Heilemann wrote this fantastic piece, "Obama Is From Mars, Wall Street Is From Venus," about financial reform and Obama's presidency for New York magazine.

At its core, it is about the disconnect between Wall Street, which
thinks that nothing needs to change, the Obama administration, who "are all technocrats who believe the system doesn’t need to be rebooted or downsized, merely better supervised" (a great description of this financial reform bill), and the American people who are suffering under 10 percent unemployment and all the rest of the brutal devastation of a financial crisis, a uniquely painful type of contraction to go through, and who desperately don't want to see another financial crisis happen here.

The whole thing should be read, especially with the idea of how each of the three groups consider "normal" -- the debate has often lacked a clear goal of where we need to get to as a people, and as such everyone is planting the normal flag everywhere.

A few quotes stood out for me. Over at Huffington Post,
href="http://www.huffingtonpost.com/2010/05/04/jpmorgan-chase-memo-goldman_n_562459.html">Shahien Nasiripour found a great quote by a JP Morgan economist: "Now
that the financial reform debate is in the final innings, it's time
for the grownups to step in." And notice this from the New York piece (my bold):

For Blankfein, Dimon, and other Wall Street bigwigs, the episode was worrying on two levels. “First, the White House decides in this blatant way to politicize the issue,” explains a financial-industry lobbyist. “Second, they overshoot the target and the thing gets away from them. It made people realize there’s no adult in charge. If Bob Rubin or Hank Paulson were Treasury secretary, they would have walked into the Oval Office and said, ‘Mr. President, I know you’d like to do this, I know your political advisers want you do this, but I’m sorry, you can’t do this.’ ”

There's no adult in charge. We need the grownups to step in.
Those who want to see the system seriously reform are infants, babies, children. Those within the system are the adults, grownups, serious, reality-based people. As father is to son, God is to man, the financial sector is to the population, Goldman is to reformers. Times like these make me miss having access to a decent chain of
being I could get behind.

This is good (my bold):

As summer turned to fall, Goldman, JPMorgan and the rest began furiously lobbying against the White House’s financial-reform bill as it moved through the House, and in particular against Obama’s proposal for a new consumer-protection agency. (In the first three quarters of the year, the industry spent $344 million on its efforts to soften the legislation.) Dimon, despite his frequent invitations to the White House, began complaining about a lack of access. “If you don’t want us to lobby, give us a seat at the table” became his mantra, punctuated with complaints about the paucity of people inside the administration with a Wall Street background. In September, he and Blankfein were conspicuous no-shows when Obama delivered a major speech on financial reform at Federal Hall — an absence interpreted by the industry and the White House as a signal of
their growing displeasure.

As Simon Johnson always likes to note, when Teddy Roosevelt sent word that he wanted to break up JP Morgan's railroad trust, JP Morgan responded “If we’ve done anything wrong, send your men to see my men and we’ll fix it up.” In other words, "if you don't want us to lobby, give us a seat at the table" and we can fix it all behind the scenes. Nice how little changes.

But one of the city’s most successful hedge-fund hotshots offers a different surmise: “The majority of Wall Street thinks, ‘Hey, you lent us money. We did a trade. We paid you back. When you had me down you could have crushed me, you could have done whatever you wanted. You didn’t do it! So stop your bitching and stop telling me I owe you, because I already paid you everything! That fact that I’m making money now is because I’m smarter than you!’ I think that’s where you’ve got this massive disconnect. In simple human terns, the government is saying, ‘I saved your life, and all you did was thank me once. You should be calling me every day: Thank you. Thank you.’ The guy who saved the life expects more. And the guy whose life is saved says, ‘I already thanked you!’ ”

It's things like this that make me take the idea of a doom loop seriously. Not only do they not get it, they on some level will forget, if they haven't already, that taxpayers and the Federal Reserve needed to step in. And next time they'll be bolder with the risk taking. Will the current financial reform bill be able to stop that?

-- Mike Konczal is a fellow at the Roosevelt Institute. He blogs about finance, economics and other topics at Rortybomb and New Deal 2.0, and you can follow him on twitter.

Related

NEW YORK — For decades, American Express was the undisputed credit card of choice among corporate road warriors, the wealthy and the well-travelled, who lived by the company’s slogan, “Don’t leave home without it.”
But changing consumer habits, extremely aggressive competition and increased pushback from its merchants are putting heavy pressure on AmEx.

Using a secret identity when you work for an intelligence agency or for the police may be expected from time to time, but adopting a fake name when you are a central banker — well, that seems like an unusual move.
That’s just what former Federal Reserve Chairman Ben Bernanke did during the darkest hours of the financial crisis, according to a report in the Wall Street Journal.

Average CEO pay at the biggest companies in the U.S. has been increasing at a moderate rate with the majority of wealth concentrated in fewer hands over the past several years, according to a new annual survey by the Wall Street Journal and the Hay Group.

If there was some confusion yesterday why in the first quarter, seemingly having no better capital allocation option S&P500 corporate CEOs spent a record $160 billion on stock buybacks, then the following report should explain it: According to a new study by the AP, the median pay package for a CEO rose above eight figures for the first time last year. The head of a typical large public company earned a record $10.5 million, an increase of 8.8 percent from $9.6 million in 2012, according to an Associated Press/Equilar pay study. The study details:

NEW YORK — The average bonus on Wall Street jumped 15% last year to the highest level since the 2008 financial crisis and was the third largest on record, New York State’s budget watchdog said on Wednesday.
The cash bonus pool swelled to US$26.7 billion in 2013, pushing the average cash bonus to US$164,530, a post-2008 high in a industry shrunk by the financial crisis, according to the New York state comptroller’s annual estimate.

NEW YORK (Reuters) - Bonuses at Wall Street firms will rise 15 percent this year despite ongoing pressure from investors, regulators and politicians about compensation levels, according to compensation-consulting firm Johnson Associates Inc.

In 2008, Wall Streeters invested millions in Barack Obama’s campaign. Many of these big donors were thus a little miffed when Obama, as President, derided Wall Streeters as “fat cats” and, to add injury to insult, threw his support behind the Dodd-Frank bill, much hated in the financial sector it was designed to reform. This time around, Wall Streeters turned against Obama, sending an even bigger torrent of cash Mitt Romney‘s way. That didn’t quite work out as planned.

By Mike Konczal
I would highly recommend checking out this interview between Shahien Nasiripour and Federal Reserve Bank of Kansas City President Thomas M. Hoenig, where Hoenig called for a
fundamental change in Wall Street. In the interview, Hoenig: